Dy.Commissioner of Income Tax, Circle-3(1)(1), Ahmedabad V. M/s. Prima Automation (India) P.Ltd., Gandhinagar

ITA 805/AHD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6319 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 08-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G C PIPRA
• Assessee Lawyers: V K SINGH
• Keywords: Earning of tax free income
• Section: 14A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 478 & 805/AHD/2015 (ASSESSMENT YEAR: 2011-12) PRIMA AUTOMATION (INDIA) PVT. LTD. PLOT NO. 793, RAKANPUR, POST: SANTEJ, TAL. KALOL, DIST. GANDINAGAR-382721, AHMEDABAD DCIT, CIRCLE-3(1)(1), AHMEDABAD V/S THE ASSTT. COMMISSIONER OF INCOME TAX, CIRLE-5, AHMEDABAD PRIMA AUTOMATION (INDIA) PVT. LTD. PLOT NO. 793, RAKANPUR, POST: SANTEJ, TAL. KALOL, DIST. GANDINAGAR-382721, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABCP6889L APPELLANT BY : SHRI G.C. PIPRA, AR RESPONDENT BY : SHRI V.K. SINGH, SR. D.R. ( )/ ORDER DATE OF HEARING : 04 -01-201 8 DATE OF PRONOUNCEMENT : 10 -01-2018 ITA NO805 & 478/AHD/2015 . A.Y.2011-12 2 PER N.K. BILLAIYA, ACCOUNTANT MEMBER 1. ITA NOS. 805/AHD/2015 & 478/AHD/2015 ARE CROSS APPE ALS BY THE REVENUE AND THE ASSESSEE PREFERRED AGAINST THE ORDER OF THE LD. CIT(A)-9, AHMEDABAD DATED 08.01.2015 PERTAINING TO A.Y. 2011-12. 2. BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE DISP OSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 3. WE WILL FIRST TAKE UP REVENUES APPEAL IN ITA NO. 8 05/AHD/2015 4. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD. C IT(A) ERRED IN DELETING THE ADDITION OF RS. 34,15,182/- MADE U/S. 145A OF THE A CT ON ACCOUNT OF ADJUSTMENT TO THE VALUE OF CLOSING STOCK. 5. ON PERUSAL OF THE DETAILS SUBMITTED BY THE ASSESSEE , THE A.O. NOTICED THAT THE ASSESSEE HAS NOT INCLUDED THE VALUE OF CENVAT OF RS . 34,15,182/- PAID ON RAW MATERIAL LYING IN THE CLOSING STOCK. THE A.O. W AS OF THE OPINION THAT THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 145 A OF THE ACT. ASSESSEE WAS ASKED TO JUSTIFY WHY ADDITION SHOULD NOT BE MADE. A SSESSEE STRONGLY OBJECTED TO THE PROPOSED ADDITION AND POINTED OUT THAT SINCE IT IS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING, ANY ADDITION ON ACCOUNT OF UN UTILIZED CENVAT IS UNWARRANTED AND UNCALLED FOR. THE CONTENTION OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE A.O. WHO PROCEEDED BY MAKING THE AD DITION OF RS. 34,15,182/- . ITA NO805 & 478/AHD/2015 . A.Y.2011-12 3 6. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED ITS CONTENTION. IT WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT SIMILAR ADDITIONS WERE MADE IN EARLIER YEARS I.E. 2008-09 & 2009-10 WHICH HAVE BEEN DELETED BY THE LD. CIT(A). 7. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) WAS CONVINCED THAT SINCE THE ASSESSEE IS FOLLOWING EXCLUSIVE METH OD OF ACCOUNTING, THEREFORE AMOUNT OF RS. 34,15,182/- BEING CENVAT PAID ON RAW MATERIAL IS REVENUE NEUTRAL. THE LD. CIT(A) DIRECTED THE A.O. TO DELETE THE ADDITION OF RS. 34,15,182/-. 8. BEFORE US, THE LD. D.R. STRONGLY SUPPORTED THE FIND INGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HA S BEEN STATED BEFORE THE LOWER AUTHORITIES. 9. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORI TIES BELOW. THERE IS NO DISPUTE THAT THE ASSESSEE IS MAKING ACCOUNTING ENTR IES FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING. WE ALSO FIND THAT THE ASSESSE E HAS BEEN FOLLOWING THIS METHOD SINCE PAST MANY YEARS. EVEN, IF THE ACCOUNTI NG ENTRIES ARE MADE ACCORDING TO INCLUSIVE METHOD OF ACCOUNTING, THE NE T EFFECT WOULD BE REVENUE NEUTRAL. THEREFORE, WE DO NOT FIND ANY MERIT IN THE ADDITIONS MADE U/S. 145A OF THE ACT AND THEREFORE WE DO NOT FIND ANY ERROR O R INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). APPEAL FILED BY THE REVENUE IS DISM ISSED. 10. COMING TO THE APPEAL OF THE ASSESSEE IN ITA NO. 478 /AHD/2015. ITA NO805 & 478/AHD/2015 . A.Y.2011-12 4 11. THE ASSESSEE HAS RAISED FIVE SUBSTANTIVE GROUNDS OF APPEAL. AT THE VERY OUTSET, THE LD. COUNSEL STATED THAT HE IS NOT PRESSING GROU ND NOS. 2, 3 & 4 AND THE SAME IS DISMISSED AS NOT PRESSED. THIS LEAVES WITH ONLY TWO GROUNDS OF APPEAL. FIRST BEING RELATED TO THE ADDITION OF RS. 68,652/- MADE BY THE A.O. U/S 14A R.W. RULE 8D OF THE ACT. WE FIND THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. THEREFO RE, IN OUR CONSIDERED OPINION, NO DISALLOWANCE NEEDS TO BE MADE U/S. 14A READ WITH RULE 8D OF THE ACT. 12. FOR THIS PROPOSITION, WE DRAW SUPPORT FROM THE DECI SION OF THE HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF CORRTECH ENERGY PVT. LTD. 372 ITR 97. 13. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 68,652/-. THIS GROUND IS ALLOWED. 14. THE NEXT GROUND RELATES TO THE ADDITION OF RS. 18,2 8,850/-. 15. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 18,8 1,970/-. AS TRAINING EXPENSES. THE A.O. FURTHER NOTICED THAT IN THE IMME DIATELY PRECEDING ASSESSMENT YEAR, THE SAME EXPENDITURE WAS RS. 1,93, 452/-. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM OF EXPENDITURE. IN ITS R EPLY, THE ASSESSEE STATED THAT THE ASSESSEE HAS AGREED TO PAY FOR THE TECHNICAL EDUCAT ION OF ITS TWO EMPLOYEES NAMELY SH. HARSHVARDHAN M PATEL AND SH. KARTIK V. P ATEL AND IN RETURN, THESE TWO EMPLOYEES HAVE AGREED TO RECEIVE 55% LESSER SAL ARY AFTER THE COMPLETION OF THEIR TECHNICAL EDUCATION TO REIMBURSE THE COMPANY FOR THE COST BORNE THEREOF. ITA NO805 & 478/AHD/2015 . A.Y.2011-12 5 16. THE SUBMISSIONS OF THE ASSESSEE DID NOT FIND ANY FA VOUR WITH THE A.O. WHO OBSERVED THAT THE SAID EMPLOYEES ARE SONS OF THE DI RECTORS OF THE COMPANY AND SECONDLY, THE MOU RELIED UPON BY THE ASSESSEE IS NO T A LEGALLY BINDING DOCUMENT. THE A.O. FURTHER OBSERVED THAT THE ASSESS EE HAS NOT FURNISHED ANY DOCUMENTARY EVIDENCE TO EXPLAIN THAT THE SAID EXPEN DITURE HAVE BEEN INCURRED FOR BUSINESS PURPOSE OF THE ASSESSEE. THE A.O. ACCO RDINGLY DISALLOWED RS. 18,28,850/-. 17. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 18. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERA TED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. THE LD. COUNSEL ONCE AGAIN PLACED RELIANCE ON THE MEMORANDUM OF UNDERSTANDING SIGNED BY THE ASSESSEE AND THE TWO EMPLOYEES. IT IS THE SAY OF THE LD. COUNSEL THAT THESE TWO EM PLOYEES ARE NOW ENGAGED IN THE BUSINESS OF THE ASSESSEE AT 55% LESSER SALARY AS AG REED UPON BY THEM AS PER THE MOU. THE LD. COUNSEL CONCLUDED BY SAYING THAT THE A SSESSEE HAS SUCCESSFULLY EXPLAINED THE BUSINESS NEED OF THE SAID EXPENDITURE AND THE SAME SHOULD BE ALLOWED. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTE D THE FINDINGS OF THE REVENUE AUTHORITIES. 19. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORI TIES BELOW. IT IS TRUE THAT THE ASSESSEE COMPANY HAS ENTERED INTO A MEMORANDUM OF U NDERSTANDING WITH THESE TWO EMPLOYEES BY WHICH IT IS AGREED THAT AFTE R COMPLETION OF THEIR TECHNICAL EDUCATION, THE ASSESSEE WOULD BE PAYING 5 5% LESSER SALARY WHEN THEY WILL RE-JOIN THE COMPANY. IT IS EQUALLY TRUE THAT T HE SAID MOU IS NOT A LEGALLY BINDING AGREEMENT SINCE IT IS NOT A REGISTERED DOCU MENT. FURTHER, THERE IS NO ITA NO805 & 478/AHD/2015 . A.Y.2011-12 6 GUARANTEE WHETHER THE SAID EMPLOYEES WOULD RE-JOIN THE COMPANY AND THERE IS NO PROVISION FOR ANY LIQUIDATED DAMAGES ON THE BREA CH OF THE AGREEMENT. THE COMPANY AND THE EMPLOYEES HAVE MERELY AGREED ON CHA RGING 55% LESS SALARY BUT IT IS NOT KNOWN FOR HOW LONG SUCH SALARY IS PAY ABLE BY THE ASSESSEE TO THE EMPLOYEES. THERE IS ALSO NOTHING ON RECORD TO SHOW THAT SIMILAR SCHOLARSHIP/TRAINING POLICY IS AVAILABLE FOR OTHER EMPLOYEES OF THE ASSESSEE. IT APPEARS THAT THIS SPECIAL BENEFIT/PRIVILEGE GIVEN T O THESE TWO PERSONS BECAUSE THEY HAPPEN TO BE SONS OF THE DIRECTORS OF THE COMP ANY. 20. CONSIDERING THE FACTS IN TOTALITY, IN OUR CONSIDERE D OPINION, THE ASSESSEE COULD NOT JUSTIFY THE BUSINESS EXPEDIENCY OF THIS EXPENDI TURE AND FAILING WHICH THE DISALLOWANCE IS JUSTIFIED. THIS GROUND IS ACCORDING LY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 10 - 01- 20 18 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY A CCOUNTANT MEMBER AHMEDABAD: DATED 10 /01/2018 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD